White House says tax cuts could add $1.2T to US economy

By JOSH BOAKOctober 27, 2017

WASHINGTON (AP) — President Donald Trump’s top economist is doubling down on claims that corporate tax cuts would spark rapid economic growth and boost incomes.

Kevin Hassett, chairman of the White House Council of Economic Advisers, released a 41-page report on Friday detailing the possible benefits from the administration’s goal of slashing the corporate tax rate from 35 percent to 20 percent. The report estimates the reduced rates for businesses could increase the size of the U.S. economy by $700 billion to $1.2 trillion over a decade, while causing average household income to eventually surge by $4,000 annually.

Democratic lawmakers and many economists are doubtful that Trump’s tax cuts can deliver the boosts suggested by Hassett. They have said that Hassett cherry-picked his evidence and that most of the benefits from corporate tax cuts would go to wealthy investors rather than middle-class workers.

“This is their latest installment of trickle down fairy dust,” said Jared Bernstein, a senior fellow at the liberal Center on Budget and Policy Priorities and a former economics adviser in the Obama administration.

Bernstein stressed that he sees benefits from a smart redesign of the corporate tax code that lowered rates and closed loopholes. But the Trump plan, he said, is assuming unrealistic gains. The framework backed by the administration and Congressional Republican leaders puts more emphasis on cutting taxes for companies and could increase the budget deficit, which would possibly hurt long term economic growth.

Hassett said in a phone call with reporters Friday that he’s “optimistic” that the possible economic growth generated from the plan will mean “it won’t significantly add to the deficit” and could be revenue neutral after 10 years. His argument is that lower corporate tax rates would lead to more investments by companies in equipment and workers, which would increase productivity and incomes.

The economic growth estimates are similar to what the conservative Tax Foundation says could happen from reducing business tax rates and allowing companies to fully expense their investments in equipment and buildings.

But an analysis released Friday by the nonpartisan Tax Policy Center estimates that the plan — after factoring in its effects on the economy — would reduce federal tax revenues by $2.4 trillion over the next decade.

A $2.4 trillion revenue loss could complicate the tax overhaul for lawmakers. Under the budget passed by the Senate, the tax overhaul can only cause a revenue loss of $1.5 trillion over a decade and still be approved by a simple majority. Any shortfalls larger than that would require a 60-vote majority.

The risk of higher deficits or spending cuts could undermine the possible growth and income gains being touted by the Trump administration, said Greg Leiserson, director of tax policy as the liberal Washington Center for Equitable Growth.

The report is claiming “gains from the tax cuts with no regard to what you have to make” the budget add up properly, he said.

The White House report separately suggested that lower corporate rates could reduce the U.S. trade gap, since companies would have less of an incentive to book their profits overseas. The possible benefits of this weren’t included in the reports estimated income growth, but the result would be faster growth for the U.S. gross domestic product. In the accounting for GDP, trade deficits subtract from growth.

Adam Looney, a senior fellow at the Brookings Institution and former Obama-era Treasury Department official, said that any additional gains would largely be contained in the GDP figures, since the amount of money being invested in the United States would not change much.

“Those are purely accounting measures, not real changes,” Looney said. “It would be using a different yardstick.”